What is the NPV of on investment that will cost us $ 10.000 right now and expect

Question

What is the NPV of on investment that will cost us $ 10.000 right now and expects to have cash flows of $1, 220 In 1 year. $3,000 in 2 years and $9,000 in 3 years? Assume a required return of 12% Karl just sold bonds for $11 26 and paid $18 one year ago Over the year he received interest payments of $8 18 What was his yield? What is the IRR of the investment in (1) If the discount rate on a Bond is 7 3%. the required return on a equity is 13.3%. and the tax rate is 32%. what is r(dt)? Your company is paying 5.25% on their bonds outstanding. 7 83% on their preferred stock, and stock holders requiring 10.65%. Your effective tax rate is 0.07. Of your capital structure. 0 06 is in debt. 0.19 is preferred, and 0 75 is in common stock What is your WACC? RentBooks com just paid a dividend of $4 12 and is expected to grow at 18%. You have estimated a required return of 29% What is their current market value? Your company is paying 3.22% on their bonds outstanding. 3.22% on their preferred stock, and stock holders requiring 7.61%. Your effective tax rate is 0.42 Of your capital structure. $340.30m of assets are funded by debt, $119.74m is preferred, and $170.15m is in common stock. What is your WACC? Harper is considering buying a Parker Sled Manufacturing bond for $215.93. This bond has a maturity value of $218, maturing in 1 years, with comparable interest rates of 24%. and coupon payments of $37 What should she pay? You are evaluating a project that will cost $1924 53 at inception, and pays $652 in 1 year. $60 in 2 years, and $664 in 3 years If your required return is 30%, what is the NPV?

Explanation / Answer

      1.00 Year 0 Year 1 Year 2 Year 3 Investment            (10,000) Cash flows                 1,220          3,000                  9,000 PV factor @12%=1/1.12^n (n=no of years)                         1              0.8929        0.7972               0.7118 PV of Cash flows=PV factor*Cash flows=            (10,000)                 1,089          2,392                  6,406 NPV =Sum pf Cash flows $        (113.11)       2.00 Bond sales price                 11.26 Bond Purchase Price                 18.00 Capital Loss                 (6.74) Interest Received                   8.18 Net Return=                   1.44 Return % in one year=1.44/18= 8.00% So Yield=8%       3.00 Year 0 Year 1 Year 2 Year 3 Investment            (10,000) Cash flows                 1,220          3,000                  9,000 PV factor @12%=1/1.115^n (n=no of years)                         1              0.8969        0.8044               0.7214 PV of Cash flows=PV factor*Cash flows=            (10,000)                 1,094          2,413                  6,493 NPV =Sum pf Cash flows $             (0.16) So at required return rate 11.5% , NPV =0. So IRR is 11.5%       4.00 Assuming r(dt) is post tax cost of debt Dsicount rate on bond =7.3% Tax rate =32% Post tax cost of bond=7.3%*(1-32%)= 4.96%       5.00 Bond cost=5.25% Tax rate=7% Post Tax cost of Bond=5.25%*(1-7%)= 4.88% WACC Calculation Capital Type % Weight   Post Tax cost Wtd Cost Debt 6.0% 4.96% 0.30% Preferred equity 19.0% 7.83% 1.49% Common Equity 75.0% 10.65% 7.99% Total Weighted cost 9.77% WACC = 9.77%

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